Thursday, May 17, 2007

The Market Often Overreacts

In the middle of last year (2006), the U.S. congress passed legislation banning transaction processing between financial institutions and internet gaming outfits. Several internet gaming stocks were hammered subsequent to the legislation, and I posted a piece on why Cryptologic may not be a good stock to buy.

Well, since that bad news, the stocks of internet gaming stocks have since rebounded. If you had the fortitude to step back from your emotions and realised that the internet gaming market still had lots of room for growth, you would have made some major profits today.

PartyGaming took a major hit since the legislation, but has since rebounded, based on the performance of growth in the European gaming market. Cryptologic as well has shown similar performance.

As the charts show, both stocks have rebounded strongly from their lows. If you had jumped in to PRTY.L sometime after Nov06 you would have almost doubled your money. You would also have made a bundle with Cryptologic.

So, the lesson is, the market often overreacts, and periods of disaster can act as strong buying opportunities.